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Collaboration? What’s in it for me? (Part 2)

In the previous article I described the benefits and the challenges of being collaborative including the effect of Collaborative Overload described by Rob Cross, Reb Rebele and Adam Grant in their 2016 HBR Article Collaborative Overload.  The question is what do we do about it?

Unfortunately, in the unusual times we live in require all of us to be more collaborative through familiar and established means (e.g. phone calls and emails) to newer means (e.g. videoconferencing such as  Zoom, WebEx, Microsoft Teams, etc. and collaboration tools such as Google G Suite, Slack, Atlassian Jira, Microsoft SharePoint/Teams, etc.).  While many of us collaborate in order to achieve the outcomes expected of us, this is underpinned by the fear of “I have so much of my own work to do but what if I don’t collaborate?”.  With global unemployment leaving entire market sectors and economies in ruin is now really the time to be seen as “uncollaborative” and “not a team player”?  With many working from home and increased availability for ‘catching-up’ increases the likelihood and severity of collaborative overload.  So what is the solution?

As with many things it is about balance.  Balancing the need of the individual to complete their own work (their output) with the collective need to collaborate to achieve the organisational outcome.  It is about setting both individual and collective objectives.  In a previous article (see Inputs, Outputs and Outcomes – Part 1 and Part 2) I discussed the differences between being individually accountability for an output while being collectively responsible for an (enterprise) outcome as one method for distinguishing between these two perspectives.  Here “Enterprise” refers to the collection of organisations and individuals that are collectively responsible for delivering the enterprise outcome.  The enterprise may be tightly defined and managed through commercial documentation, or loosely organised through an unwritten understanding of individual roles and responsibilities in delivering the enterprise outcome.

Just as important as setting and reporting on individual and collective performance is organisations and managers publicly encouraging, rewarding and celebrating those who achieve this balance.  

As way of a sporting example, Article VI(E)(10)(a) of the Collective Bargaining Agree (CBA) between the United States Major Baseball League (MBL) and the player’s union outlines 6 factors that may be considered in making a determination of the player’s value as follows:

  1. the player’s “contribution to his Club (including but not limited to his overall performance, special qualities of leadership and public appeal)” in the preceding season (often called the platform year);
  2. the player’s “career contribution”;
  3. the player’s past compensation;
  4. the salaries of comparable players;
  5. any “physical or mental defects” of the player; and
  6. the Club’s recent performance, which can include “[l]eague standing and attendance as an indication of public acceptance.”

As you can see value here is a balance of individual (player) and collective (Club) performance and over the longer term recognising there may be short-term ups and downs.

Unfortunately, for many organisations, this is rarely the case.

So my suggestion for those wanting to incentivise collaboration is to encourage, reward and celebrate those who achieve this balance by assessing value as both individual and collective contributions. By highlighting both requirements we are making it clear that individual success is not enough; rather success is defined as a combination of both individual and collective success.

To finish my story I started with, the person from my former company was fortunately very collaborative.  He not only succeeded personally but helped others in the company succeed regardless of location or position resulting in a “champion team”; and who doesn’t want to be a part of that!

Featured post

Collaboration? What’s in it for me?

I don’t know why you play a team sport and not be concerned about making your teammates better and helping your team win games. That’s the only thing that really matters, and if you’re the best player, surely you’re going to have some effect on the game’s outcome.

Larry Brown

Having watched the finals of many sporting events I am reminded of the question of whether you desire a “team of champions” or a “champion team” and how this relates to collaboration.

One approach is to set, recognise and reward individual performance objectives with the expectation that this will lead to the achievement of overall, or collective, performance objectives.  I remember as a new member of a consulting firm celebrating the individual with the highest billable hours for the year and all wanting to be that individual perceived by all as both individually and organisationally successful.  But at what cost?  Was this reflective of overall company performance?  Did the individual help others find and complete their work?

Unfortunately, as highlighted in the 2016 HBR Article Collaborative Overload by Rob Cross, Reb Rebele and Adam Grant, they found roughly 20% of organisational champions don’t collaborate; they achieve their individual performance objectives but fail to assist others in achieving their objectives.  But what is the alternative?

Instead, we can set, recognise and reward both individual and collective performance objectives similar to the much guarded but often described Google Page Ranking algorithm.  Here, it isn’t simply about how often the webpage is accessed, but also examines how other pages are linked to / from these pages.  That is, a relative measure of the usefulness of this page in the eyes of others.  Similarly, many sports such as rugby league and union, Australian Football League (AFL), American football, soccer, basketball, etc. don’t simply measure goals or points, but also track players assisting others in the team.  But how do we identify and reward the top collaborators in our organisation?

Given the move to virtual collaboration there are a range of tools that can identify and track those who are central to the collaborative process.  Indeed a colleague who led a blue-sky research team within a very large organisation stated they had the capability to mine the corporate email and instant messaging system to highlight who had the greatest impact both in terms of formal (e.g. senior managers, executives, subject matter experts, etc.) and informal (e.g. the locally acknowledged ‘go-to’ individual for solving problems) influencing.  So the ability exists.  The question is more whether we (1) want to know who these people are and (2) have the ability to reward them for their role in organisational success.  In many cases this may damage corporate hierarchies with some organisations (and individuals) not be ready for this.  Indeed, former Goldman Sachs and General Electric (GE) chief learning officer Steve Kerr once wrote, “leaders are hoping for A [collaboration] while rewarding B [individual achievement]”.

However, being collaborative is a double edged sword.  Just as we help others and the wider organisation achieves better performance through more innovative approaches, it leaves the helpers significantly less time for focused individual work, careful reflection and sound decision making.  The effect was dubbed Collaborative Overload by Rob Cross, Reb Rebele and Adam Grant.

In the next part of the article, we’ll describe some practical steps of how you can address these challenges and deliver both individual and collective success.

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The Key to Successful Collaboration

The continued changes in how we work, both individually (a move to individual contracts sometimes referred to as the “gig economy”) and organisationally (companies focused on their core strengths and outsourcing the rest), has resulted in the critical need to work collaboratively with others.  Whether it be designing a new product, delivering a service or even responding to tender, harnessing the strengths of each participant is critical to collective success.  Unfortunately, simply having the desire to collaborate is unlikely to result in success, especially in new relationships formed for a specific purpose.  Long-term, successful collaboration requires other ingredients to ensure success.

In her article, Collaborating with Someone You Don’t Know, Rebecca Zucker proposes the following 5 questions for starting a successful collaborative relationship:

  1. Do you understand both the collective and individual goals for the collaboration?  By understanding individual and collective goals, we help communicate why we are collaborating.  Without goal alignment, we may end up working at crossed purposes resulting in wasted effort, frustration and potentially failing to deliver our goal.
  2. Do we understand our Individual Strengths and Weaknesses?  Once we have a clear understanding of the goal, it is essential we understand our individual strengths and weaknesses.  This allows the strengths of each participant to be collectively focused on delivering the goal, while mitigating individual weaknesses.  Importantly, and while potentially confronting for some, we need to recognise that the public identification of individual weaknesses is not an attack on the merit or worth of an individual or organisation.  Rather, it highlights individual areas of strengths; the reason why they are critical member of the team.
  3. Have we Clear Roles and Responsibilities?  Once we have a clear understanding of the goal and our strengths and weaknesses, it is essential we define the individual roles and responsibilities including activities, deliverables and timings.  As part of establishing the roles and responsibilities, it is important that we include any prescribed workshare expectations and boundaries to avoid future conflict.
  4. Have we Established our “Ways of Working” together?  While many individuals and organisations will appear similar in their approach and operation, each of us will have specific and unique “ways of working”; that is, preferred ways of collaborating.  For example, some may prefer face-to-face meetings (in person or virtual with the aid of video), while others may prefer written communication via email.  Some may prefer the formality of routine of regular, scheduled meetings with set agenda, while others may prefer to be more organic simply contacting when and where the need arises through calls or instant messaging.  It is not important which approach you use, but rather that each of the participants understands the “way of working” of the others, and that this taken into account when working with each other to avoid frustration and delay, but instead maximises collaboration.
  5. Are we Checking the Health of the Collaboration?  Finally, we need to define the regular, scheduled “health checks” to not only ensure we are all on the right track to deliver the goal, but also the health of the relationship, including giving positive and constructive feedback to each other.  This is important, especially in new relationships or relationships that have formed organically over a period, in order allow each participant to routinely catch-up and highlight areas of both positive and negative feedback.  In my experience healthy business relationships are underpinned by regular and open communications between all participants.

Having seen and been a part of many collaborations, I believe that Rebecca Zucker’s 5 questions are an excellent starting point for both existing and new collaborative relationships.  Indeed, I would recommend all those in collaborative relationships take the time to check their response to each point since addressing each will result in a higher chance of success.  Afterall, that is why we collaborated in the first place!

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Happy 2020 Holidays to all the Collaborative Contracting Blog Readers

To all our readers, we hope that despite the unexpected and hard year we’ve all endured, that each of you have an opportunity to have a break and a bit of downtime over the next few weeks.

So sincerely, here’s wishing you all the joys of the season and happiness all throughout the upcoming year.  We have all earned it!

Happy holidays!

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Collaboration and Reputation

Just One Goat

‘Just One Goat’ – J. Davies (2020)

 

Collaboration and Reputation

“Regard your good name as the richest jewel you can possibly be possessed of, for credit is like fire; when once you have kindled it you may easily preserve it, but if you once extinguish it, you will find it an arduous task to rekindle it again.”  – Socrates (470 – 399 BC)

 Why Is Reputation Important?

Effective collaborative relationships are underpinned by trust, and by extension reputation. The reputation of an organisation is a strategic asset and a significant source of corporate value as observed by Eccles et al:

“…in an economy where 70% to 80% of market value comes from hard-to-assess intangible assets such as brand equity, intellectual capital, and goodwill, organizations are especially vulnerable to anything that damages their reputations.[1]

There are significant examples of organisations who have destroyed corporate value because they did not adequately protect their reputation. These examples include poor risk management practices such as BP with the Deepwater Horizon Disaster,  fraudulent conduct such as Volkswagen’s emissions cheating practices,  and highly imprudent statements about product quality such as the Chairman of a large jewellery retail chain publicly stating that the company’s products are “complete crap”.[2]

Failure to operate your company is a ‘sound and business-like manner’ and with ‘reasonable skill and care’ is not only unlawful in most jurisdictions[3] but also a sure-fire way to erode value and destroy trust.  Doing what you say you are going to do, behaving ethically, and treating your customers with respect are all simple strategies to build up and maintain positive relationships. We also need to consider reputation more broadly between buyers and suppliers, especially with strategic suppliers and customers. 

The current global pandemic is generating extreme volatility and uncertainty in business relationships.  The temptation to retreat into silos with a ‘dog eat dog’ approach may yield very short-term benefits; however, smart companies will play the long game and focus on how the business will operate after the crisis is ended. In other words, these companies will look to preserve or even enhance their reputations

Strategies for Preserving Your Reputation in a Crisis

In a crisis, an organisation may be legally frustrated from delivering what they promised. This can apply to organisations involved from both the buy side and sell side. A black letter law approach would push businesses towards efficient breach of the contract or litigation to resolve the issue (often through legal technicalities) but as we know, such approaches destroy trust and annihilate opportunities for parties to work effectively with each other in the future. Organisations therefore need to explore options for win-win outcomes through the following:

Transparency. Be honest and do not surprise your suppliers or customers.  Early and frank disclosure will more likely preserve trust and allow for joint, mutually agreed solutions.

Demonstrate Leadership. Be a role-model to your teams, customers, and suppliers. Be proactive, be courageous, and do not let issues fester. Problems rarely go away by themselves.

Maintain Flexibility. Two millennia ago, the Roman statesman, Publilius Syrus stated that, ‘it is a poor plan that admits to no modification’. This tenet is especially relevant now. Organisations need to accept that existing Business Cases, Corporate Plans, Profit Forecasts, and Programme Charters are likely to be superseded by events. Stubborn organisations that do not adapt their strategies and plans will likely fail. Successful organisations, that work collaboratively with buyers and suppliers to promote flexibility and agility,  will more likely succeed.

Negotiate to Create Value. Negotiation does not have to be a zero sum game. Adopt a positive approach to negotiation that explores opportunities for both parties and the creation of value.

Fix the Problem and not the Blame. When the proverbial hits the fan, there is an overwhelming temptation to start pointing fingers. We need to resist this temptation and focus our energy on fixing the problem.

Adopting the above strategies will not guarantee preservation of goodwill but will be far more likely to avoid losing a cherished reputation. Organisations may also seek a crisis to enhance their reputation and prove that they can work collaboratively in both good and bad times.

Summary

When a crisis strikes, we naturally focus on short term survival. This is absolutely necessary where cash flow and solvency is at risk and other extreme risks or issues place business viability in jeopardy. Like Maslow’s hierarchy of needs,[4] we should not ignore these critical factors but at the same time we also need to be future focused and explore how the organisation will look and work at the end of the crisis.  Short-term survival does not have to be at the expense of long-term relationship building. Organisations now have a unique opportunity to demonstrate their affinity to collaboration in good times and bad.  Playing the long-game, from a collaboration perspective, should be a strategic priority.

[1] Robert G. Eccles , Scott C. Newquist and Roland Schatz “Reputation and Its Risks” Harvard Business Review February 2007.

[2] Gerald Ratner, After Dinner Speech to UK Institute of Directors (Apr 1991).

[3] Companies Act 2006 (UK) s174; Delaware General Corporation Law Delaware s145; Canada Business Corporations Act (1975) s122; Corporations Act 2001 (Cth) s180.

[4] Maslow, A. H. (1943). A theory of human motivation. Psychological review,50(4), 370.

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Disputes and Issues Resolution – Best Practice for Collaboration (Part 2)

“One is not exposed to danger who, even when in safety is always on their guard.” – Publilius Syrus (circa 60 BC)

ludit lexus

Ludit Lexus  – J.Davies (2020)

Introduction

In part one of our discussion on disputes and issues resolution, we explored strategies for effectively dealing with disputes internally. The key theme here was to resolve issues quickly, fairly and at the lowest possible level.  In some circumstances though internal mechanisms may be insufficient to resolve critical disputes.  In our current volatile and uncertain environment, some aspects of the commercial relationship may not be possible to perform and the contract could be frustrated.[1] Even force majeure can introduce substantial uncertainty to the performance of the contract.  We therefore need to anticipate mechanisms to deal with serious issues that cannot be effectively resolved through internal measures.  We should not rely on litigation or arbitration to seek resolution.  Litigation and arbitration are very time consuming, expensive and uncertain processes that are very unlikely to support future positive relationships. Consequently, we must explore other, less destructive, external resolution mechanisms.

External Disputes Resolution Options

In our first blog we recognised that disputes and issues resolution processes and largely unfettered so long as they do not ‘oust the jurisdiction of the courts’.  This means that we are free to select any form of disputes and issues resolution process so long as the commercial agreement does not fetter any party in pursuing litigation until after the dispute resolution process has run its course. For effective collaborative outcomes we need to adopt the same mantra of disputes and issues resolution principles we explored earlier; that is resolve quickly, fairly and at the lowest level practical.  Once we move to external disputes resolution, solving problems at the lowest level means anything other than arbitration or litigation. Best practice resolution here includes mediation and expert determination

Mediation

The Resolution Institute offers a succinct definition of mediation as follows;

Mediation is a confidential process where an independent and neutral third party assists the disputants to negotiate and reach a decision about their dispute.[2]

The role of the mediator is not to impose a solution or binding outcome, rather the mediator facilities a joint, win-win outcome by exploring issues and positions of the parties collaboratively.

A mediator will only participate in the process if all parties are committed to resolution of issues in good faith.  Mediation is usually the quickest and cheapest of all the external dispute resolution processes and is also more likely to preserve positive business relationships.

Expert determination

For technical disputes, an expert can be employed in a resolution role. Quite often the expert’s ruling is considered binding.  The Australian Institute of Arbitrators and Mediators recommend the following rules apply to expert determination:

  1. The Expert shall determine the Dispute as an expert in accordance with these Rules and according to law.
  2. The parties agree that:
    1. the Expert is not an arbitrator of the matters in dispute and is deemed not to be acting in an arbitral capacity;
    2. the Process is not an arbitration within the meaning of any statute.
  3. The Expert shall adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay and expense, so as to provide an expeditious cost-effective and fair means of determining the Dispute.
  4. The Expert shall be independent of, and act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting its case and dealing with that of any opposing party, and a reasonable opportunity to make submissions on the conduct of the Process. [3]

For more complex and long-term commercial arrangements, parties may pre-select the expert for each discipline area. For example, the parties could pre-select an expert for pricing issues, technical solutions, or for contract interpretation.

There are several permutations in how the expert can decide on an issue. In most cases, the expert is free to come to their own conclusions as to how the dispute should be settled. In other cases, the expert may be bound to select a course of action between the ambit of the parties’ positions.

A variation of the expert determination decision making process is final offer arbitration or baseball arbitration.[4] In this situation, an expert is only permitted to select one course of action provided by one of the parties. There is no scope to select within the middle ground. Consider the following example:

A supplier is seeking additional sums related to a substantial contract change proposal initiated by the customer.  The customer is expecting a $100,000 increase in costs associated with the change, whereas the supplier expects the change to incur an additional $500,000 in costs. If the parties wish to resolve this issue via baseball arbitration, then they will need to submit a best and final offer to the arbitrator. Each party does not get to see the final offer from their counterparts.  The arbitrator will estimate the cost of the contract change proposal and will select the best and final offer that is closest to their expert estimate.  In this example, the expert may decide that the additional costs are $250,000. If the customer digs in their heels and sticks to the $100,000 additional sum, but the supplier is more reasonable and adjusts their escalation fee to $300,000 then the arbitrator will select the $300,000 escalation fee since this figure is closest to the arbitrator’s estimate.

Baseball arbitration prevents any one party making outrageous or unfair claims for fear that their claim will be considered less equitable or fair when compared to the other party’s claim. This can be implemented relatively quickly and cheaply provided there is an arbitrator with the necessary skills available.  By design, this approach nudges parties to provide reasonable offers and will likely preserve business relationships.

Conclusions

For resolving disputes and issues, we must first craft a commercial strategy that minimises the likelihood of disputes and issues arising in the first place. Fair and equitable risk allocation, early engagement, and transparency are all tools we can adopt to achieve this. Nonetheless, we need to anticipate disputes arising and ensure our contract has effective internal disputes and issues resolution processes.  With an effective collaborative culture, we should not expert disputes and issues to require external resolution processes, but we should not create a situation where arbitration and litigation is the only step available to us.  Mediation and expert determination should be considered, especially for longer term, strategic relationships.

[1] J. Curle & C. Allin ‘Coronavirus COVID-19 and frustration: Is your contract at risk? (United Kingdom)’ (Mar 2020)  https://www.dlapiper.com/en/chile/insights/publications/2020/03/coronavirus-covid-19-and-frustration-is-your-contract-at-risk/

[2] Resolution Institute (2017)  https://www.resolution.institute/dispute-resolution/mediation

[3] Resolution Institute (2017) https://www.resolution.institute/dispute-resolution/expert-determination

[4] L. Samples ‘Resolving Construction Disputes through Baseball Arbitration’ American Bar Association (2019)

Early Supplier Engagement

“When you talk, you are only repeating what you already know. But if you listen, you may learn something new.”- 14th Dalai Llama.

Group Collection by Justin Blake (Creative Commons)

Introduction

In the procurement lifecycle many organisations engage with their suppliers to seek information on the supplier’s ability to deliver and at what cost.  This is normally achieved with the release of a request for tender or request for quote.  Such strategies may be suitable where the customer has a very clear idea of what is needed, what market conditions are like, and where procurement risks are modest. When we move to more complex and riskier procurement activities, early supplier engagement is vital. This month’s blog explores why we need to engage early with industry and how to do so.

Smart Buyer Perspectives

A ‘smart buyer’ recognises that they will not always have all the answers. Vann’s framework explores the following questions that should always be asked from a smart buyer:

  • Why buy,
  • What to buy,
  • When is it needed,
  • How much should we pay,
  • How to buy,
  • Who to buy from, and
  • What was bought?[1]

Even for the most mature organisations with substantial internal capability and capacity, these critical questions cannot be effectively answered without engaging with the market.  At what stage though should we engage with industry? The Canadian Government Smart Buyer Procurement framework lists early engagement as one of their four essential pillars or procurement and recognises that early engagement ‘should begin as early as the needs identification stage.’[2] A smart buyer recognises that early engagement can reap benefits but what are these benefits?

Benefits of Early Engagement

Early engagement offers immense opportunities to explore the art of possible, ensure expectations are realistic, motivate[3] and prepare suppliers, and ensure business cases are credible.  The following list (though not exhaustive) explores these themes:

  1. Reduce asymmetry of Information.  Customers are not omnipotent and do not have a complete understanding of what the market can or cannot provide.  Early engagement allows for industry to inform requirements, identify opportunities, and validate critical assumptions.
  2. Promote realistic expectations. Optimism bias is rife in complex projects.[4] Unless we engage early with our suppliers then our initial business cases will be devoid of realistic cost, schedule and performance estimates.
  3. Reduce Bid Preparation Effort.  Transactional approaches to procurement often involve the release of a request for tender (typically the week before Christmas) that invariable comes as a complete surprise to industry.  Early engagement allows industry to inform the customer, prepare and respond faster to the RFT, and with more credibility.
  4. Reduced negotiation effort. Where contract requirements and conditions are developed unilaterally, with no industry engagement, expect negotiations to be protracted and adversarial.  Ensuring industry can provide feedback on requirements and commercial terms will take a substantial amount of pain out of negotiations.

Pursuing early engagement with industry also sets the tone of the future relationship. In such circumstances, the customer is highlighting that they value industry input, are seeking reciprocity, and are focused on delivering value rather than seeking the lowest price.  This is far more likely to promote the collaborative behaviours we need for successful delivery.

Strategies for Early Engagement

The Canadian government offers some useful examples of early engagement, including:

  1. Requests For information (RFIs);
  2. industry days;
  3. informal discussions;
  4. online questionnaires;
  5. online collaboration tools;
  6. focus groups; and
  7. one-on-one supplier consultations.[5]

More resource intensive and interactive strategies include:

  1. Design Competitions,
  2. Exploring and trading off requirements through Cost as an Independent Variable (CAIV),
  3. Funding rapid prototypes, and
  4. Engaging in collaborative project definition studies

These latter approaches normally require engagement with industry through some form of contract prior to entry into a head contract once requirements, budgets and schedules have been set. There are no limitations on who can be engaged here and funding multiple suppliers in a competitive early development phase may be valid.  

We are not limited to just selecting one of the above strategies.  We can choose more than one to help us converge on a solution. We need to remind ourselves that the solution is not just based on requirements but also the, “terms and conditions, pricing structure, performance metrics, evaluation criteria, and contract administration matters”. [6]  For example, we may exploit design competitions, CAIV, and rapid prototypes to define requirements, then use one-on-one discussions, questionnaires and industry days to refine commercial terms. 

Challenges with Early Engagement

Early engagement can introduce probity risks, resource challenges, and competition risks.  Probity risks arise where we are dealing with multiple suppliers and there is a great risk of ‘bid contamination’.  Similarly, customers need to be wary of adopting proprietary solutions that can hinder future competition.  Resource challenges arise as funds need to be available very early in the procurement lifecycle. The UK Government makes this point clear, “with early engagement though comes the requirement for early investment.”[7] There must be a compelling argument for engaging resources early in a program.  Competition issues may arise where we need to focus our efforts on a small cadre of suppliers rather than every participant in the market.  Where we are investing in rapid prototypes, CAIV approaches, or project definition studies a decision must be made as to who will be invited to participate. This will likely involve selection on ‘non-price’ criteria which opens the selection process up to criticism. 

Conclusions

Early engagement will pay substantial dividends if managed correctly.  Suppliers are far more likely to have a thorough understanding of business practices, technologies, and market trends in their core business when compared to customers.  Early engagement allows for early adoption of innovative solutions and value creation.  Developing a suite of contracts, commercial models, specifications, and requirements in isolation to your strategic suppliers will only erode value.


[1] Vann ‘Institutional Dimensions of the Government’s “Smart Buyer” Problem: Pillars, Carriers, and Organizational Structure in Federal Acquisition Management’ (2011).

[2] Canadian Government, Public Services and Procurement Canada ‘Smart Procurement’  https://buyandsell.gc.ca/initiatives-and-programs/smart-procurement/about-smart-procurement#Engagement

[3] UK Defence Procurement Policy Research paper 03/78 (2003).

[4] Bent Flyvbjerg, Nils Bruzelius, and Werner Rothengatter “Megaprojects and Risk: An Anatomy of Ambition” (2003).

[5] Canadian Government Opcit.

[6] Cohee, et al ‘Early Supplier Integration in the US Defense Industry’ Journal of Defense Analytics and Logistics Vol. 3 No. 1, (2019).

[7] Gansler et al ‘UMD FINAL Report LMCO An Analysis of Through-Life Support – Capability Management at the UK’s Ministry of Defense’ June 2012.

My Strategic Supplier is Making Abnormal Profits – So What?

Your profits reflect the success of your customers.” – Ron Kaufman

Money Bag – Creative Commons licence v4.0

Introduction

In many transactional, fixed price contracts, customers are often oblivious to their supplier’s actual profit margins. However; with many collaborative contracts, we often use open book financial reporting. In these circumstances, we can see where the money goes and how much profit is being made.  Commercial managers may be alarmed when they see suppliers make abnormal profits, but we should never over-react to such revelations.   On the contrary, abnormal, or high profits may be a symptom of a high performing team that is driving innovation for the benefit of the customer.  This blog explores these themes where we focus on value rather than price.

Are Profits Really Abnormal?

Effective commercial managers on the buy side possess the commercial acumen to understand the supplier’s business. Effective relationships demand mutual understanding as described in the Automotive Industry by Liker and Choi

“Unlike most companies we know, Toyota and Honda take the trouble to learn all they can about their suppliers. They believe they can create the foundations for partnerships only if they know as much about their vendors as the vendors know about themselves.”[1]

Not all industries are equal and profit margins are highly variable.  The Australia Department of Defence in their Profit Principles recognise three elements of the contract profit rate, comprising:

  • Return for Contractual Risk. For example, firm fixed price contracts are far riskier to suppliers than cost reimbursement contracts.  A higher profit margin would therefore be expected in fixed price arrangements.
  • Return for Activity Risk. Complex, developmental activities carry far greater risk than simple, commercial off the shelf activities.  Suppliers will factor in additional profit for the risky developmental tasks.
  • Return for General Business Risk.  Profit is to be expected on shareholder returns, general and administrative activities, managing sub-contractors, and general resource management.[2]

Included in the contractual risk profit provisions will inevitably be a supplier’s factor for relationships.  With a proven track record of positive relationships with their customer, a supplier may abate their profit margins, knowing that their commercial partner will act reasonably and fairly if things go wrong.  Conversely, if a supplier is dealing with a difficult customer, then they may load up their profit margin (or add contingency) to cater for the drama of working with a troublesome counterparty (or even worse, refuse to do business with that customer).  The following examples illustrate this point:

“In my opinion, [Ford] seems to send its people to ‘hate school’ so that they learn how to hate suppliers. The company is extremely confrontational.”[3]   – Supplier Executive Manager

“Starve before doing business with the damned Navy. They don’t know what the hell they want and will drive you up a wall before they break either your heart or a more exposed part of your anatomy.” – Kelly Johnson, Vice President at Lockheed Martin[4]

Even if you consider yourself a ‘perfect customer’ and suspect supplier profits are high (taking into account contract risk, activity risk, and business risk), there may be no real cause for alarm. The next step is to ask yourself, why are profits are high?

Cause and Effect

All highly competent people continually search for ways to keep learning, growing, and improving. They do that by asking WHY” – Benjamin Franklin

Perceptions of price can be important as the price itself.[5]  A cynical manager who is exploring high supplier profits would immediately assume that the supplier is acting opportunistically and gouging the customer.  This is a very dangerous starting point to adopt (even if the premise could be true). A useful starting point is to explore why profits are high by asking the following questions:

  • Are the profits high in the long term or are they cyclical? Depending on the project or business lifecycle, profit margins can vary widely over the medium to long term.
  • Is the supplier reinvesting profits into their business?  Where a supplier is investing in the relationship, seeking innovative ways of doing business, and adding future value then this should be encouraged.
  • Are you, as the customer, gaining ‘abnormal value’ from the relationship? So long as the customer’s strategic needs are being met and value is being delivered then we should not be too fussed about supplier profits.

If, after the exploring the issues above, it is revealed that value is not being delivered and suppliers are not investing in the relationship then a recalibration of the relationship may be required.  This does not mean that price becomes the only consideration. Do not let the pendulum swing too far in the other direction.

Driving value

The collaborative commercial model should be designed so that all parties win, or all parties lose.  There are a myriad of remuneration and non-price mechanisms we can use to achieve this. In addition to the commercial model, we also need to foster a collaborative culture and operate as one team.  Kanara goes further to state that customers should “treat your vendors like employees.”[6] If we are truly engaged in a collaborative model then customers should “learn to love their supplier’s profits”[7].  The caveat of course is to ensure the relationship continues to deliver value to both parties.  In addition to the remuneration strategy, we can also look at other ways to enhance the profit pool for both buyers and suppliers such as:

  • Initiate a continuous improvement and innovation fund where some of the savings can be distributed to each parties’ profit pool and the remainder used to fund additional continuous improvement and efficiency initiatives (thus creating future savings).
  • Encourage suppliers to reinvest in their business by increasing their scope of work within the customer’s organisation and offer longer term contracts.

Conclusion

High supplier profits may not necessarily be a bad thing.  So long as customers are provided with value then it may be a very positive sign to see high supplier profits, especially where customers and suppliers work together collaboratively to jointly create value.  Ideally, we should craft a commercial model where parties seek to continuously innovate and pursue excellence.  Nevertheless, there is also an important message for suppliers in this discussion. Never turn up to a customer meeting or contract negotiations driving a Maserati.[8]


[1] Jeffrey Liker and Thomas Y. Choi “Building Deep Supplier Relationships” Harvard Business Review (December 2004).

[2] CASG Profit Principles v1.0 (2017) p2.

[3] Liker et al, opcit. 

[4] Rich & Janos “Skunk Works: A Personal Memoir of My Years of Lockheed” (2013).

[5] Sandeep Heda, Stephen Mewborn and Stephen Caine “How Customers Perceive a Price Is as Important as the Price Itself” Harvard Business Review (January 2017).

[6] Ken Kanara “Rethink Your Relationship with Your Vendors” Harvard Business Review (March 2020).

[7] Anon.

[8] Quote attributed to Andrew Pyke https://www.linkedin.com/in/andrewpyke/

Collaboration and Chaos

Chaos is found in greatest abundance wherever order is being sought.  It always defeats order, because it is better organised.” – Terry Pratchett

M. Grandjean, Social Network Analysis Visualisation (2014)

Introduction

Ashby’s law of requisite variety tells us that if we want to control a system, then we must control at least as many states as the system we wish to control. In other words, ‘variety can destroy variety’.[1]  In the contracting domain, Ashby’s law creates significant challenges. We often look to the contract as a tool for formalising and implementing control but how effective are such tools in complex environments?  For simple, short term procurement activities there may be little variety or states of the system for us to manage or influence. In such circumstances, simple transactional contracts may offer sufficient input variety to deal with modest change and emergence.  When we move to more complex, long term arrangements with multiple, influential stakeholders then the quantum of variety in the system can increase exponentially. In such cases, crafting a contract with a repertoire of responses to deal with all these possible states or variety becomes a Herculean task.  This is where we need to look towards collaboration and new ways of delivering outcomes.

The Illusion of Contractual Protection

We like to think of our contracts as ‘iron clad’ mechanisms to protect our commercial positions, limit (or eliminate) liability, and clinically transfer risks to other parties.  Such notions though are illusory for many reasons.  Flydlinger, Hart, and Vitasek observe that contracts often create economic ‘hold-up’ behaviours where parties are unwilling to optimise outcomes:

The fact that virtually all contracts contain gaps, omissions, and ambiguities—despite companies’ best efforts to anticipate every scenario—only exacerbates hold-up behaviour.[2]

Such gaps and omissions will only increase in complex environments where we must deal with long term horizons, and multiple parties.  The variety associated with complex programs makes the so called ‘iron clad’ contract a myth. This is precisely what Ashby was talking about in the following statement (emphasis added):

               When the variety or complexity of the environment exceeds the capacity of a system                (natural or artificial) the environment will dominate and ultimately destroy that system.[3]

Whilst we would not allow circumstances to completely ‘destroy our systems’, we often destroy commercial value through:

  1. Excessive and inefficient contract change proposals,
  2. Wasted time in negotiations,
  3. Increased disputes and issues management,
  4. Sub-optimal delivery mechanisms,
  5. Increased and unnecessary contract contingency fees, and
  6. Under and over-insurance.

We also need to recognise there are very long preparation times and high development costs for these complex contracts. Many of these complex contracts are unfit for purpose.  Attempting to deal with all possible end-states or variety is not the answer. What we can do though is attack the problem from two perspectives. Firstly, we can limit variety within the system and secondly, we can increase our repertoire of responses (input variety).

Limiting Variety in the System

There are many ways we can limit variety in the systems we are attempting to control. In the commercial space we can do this by changing jurisdictions, removing the influence of stakeholders, and limiting the scope (and risk) of what we are trying to achieve.  In our previous blog on agile procurement, we also explored how we can aim for incremental delivery rather than a ‘big bang approach’.  Keeping our options open and not getting locked into a specific solution also helps us keep variety in check.  This includes the promotion of open architectures[4] and avoiding proprietary systems. 

Collaborative approaches also constrains variety in our systems. Where buyers and suppliers work collaboratively towards common goals then diverging interests are far less likely to create challenges.  In other words, where the parties focus on the question “what is in it for we”[5] then the focus is on fixing the problem and not the blame.  This means there is far less ‘noise’ in the system that would normally create unnecessary distractions. By default, we are limiting variety in the system or limiting the influence of that variety.

Increasing Our Span of Control

Maslow’s observation that, “if all you have is a hammer, everything looks like a nail” [6] is an axiom that regularly applies to contract lawyers.  The lawyer’s toolbox of responses is typically to claim that a breach has occurred and enforce damages. Black letter lawyers may also claim that the other party has repudiated the contract, they may threaten or seek termination, or pursue other similar legal sanctions to control that other party.  These control levers are limited in their application, are often ineffective, and carry great risks should they be used.  Contrast this approach to collaborative contracts that bring buyers, suppliers, and critical stakeholders inside the tent. In such circumstances, we have a far great range of responses that include working together to deliver mutually beneficial outcomes.  No longer do we need to rely on the sticks of control[7]  as all parties are working cooperatively towards common goals. We now have a combined range of responses that is far greater than that of any one individual organisation.  Implementing such approaches though requires leaders to possess the necessary mental agility and flexibility to deal with variety in our complex systems, as observed by Goss et al:

Applying the law of requisite variety to leadership in the implementation of change implies that leadership sources must have a repertoire of responses that can successfully deal with the variety of situations they encounter during implementation.[8]

Conclusions

We often rely on contracts to control outcomes but in complex environments, ‘black letter law’ control systems are often ineffective and are often constrained by Ashby’s law of requisite variety. Furthermore, control kills invention, learning, and commitment.[9]  To deal with complexity, collaborative approaches can both constrain variety in our systems and offer us a far greater range of responses when compared to transactional, arms-length contracts.


[1] Ashby, W.R. An Introduction to Cybernetics (1956), p 206.

[2] David Frydlinger, Oliver Hart, and Kate Vitasek ‘A New Approach to Contracts How to build better long-term strategic partnerships’ Harvard Business Review (Sep–Oct 2019).

[3] Ashby, opcit.

[4] Santiago J ‘Applicability of the Law of Requisite variety in Major Military System Acquisition’ (2017) p 60,76 at https://apps.dtic.mil/dtic/tr/fulltext/u2/1046519.pdf

[5] David Frydlinger, Oliver Hart, and Kate Vitasek ‘A New Approach to Contracts How to build better long-term strategic partnerships’ Harvard Business Review (Sep–Oct 2019).

[6] A Maslow, Psychology of Science (1966).

[7] I Ayers, Carrots and Sticks (2010).

[8] Tracy Goss, Richard T. Pascale, and Anthony Athos ‘The Reinvention Roller Coaster: Risking the Present for a Powerful Future’ Harvard Business Review (1993).

[9] Ibid.

Ethics and Collaboration

Relativity applies to physics, not ethics” – Albert Einstein

Image Courtesy of Nick Youngson (creative commons)[1]

Introduction

When we embark on collaborative ventures, there are inherent features that drive us towards more ethical behaviours.  For example, when we collaborate, we are more likely to empathise with out counterparts, power may be diffused with joint decision-making, and our ways of thinking and doing business may be more diverse.  All of these features help us avoid ethical lapses, but we must be alert to some of the risks associated with collaboration.  In this blog we explore some of the temptations that can arise in collaborative ventures and offer strategies to ensure all parties work together ethically to achieve enterprise outcomes.

Winning at Any Cost?

In Ron Carucci’s paper, ‘Why Ethical People Make Unethical Choices’, he makes the following observation:

“organizations set themselves up for ethical catastrophes by creating environments in which people feel forced to make choices they could never have imagined.”[2]

The literature is clear that unrealistic goal setting will encourage people to make compromising choices and as Carucci observes, this pushes people to breach ethical standards in two ways.  First, they may compromise and cut corners to reach goals and secondly, they will under-report or lie about what progress has actually being achieved.[3] Similarly, if we create a reward system that is too enticing, we can encourage ‘justifed neglect[4] whereby the temptation to cheat is too great (especially if the risks of getting caught are low).

When we set up collaborative frameworks, we must be sensitive to setting realistic goals and ensure no one is set up to fail.  Similarly, where failures can occur, then we must ensure that the consequences of such failures are not catastrophic. If the cost of failure is too high for an individual, then there is a clear invitation to deceive and mislead. Setting realistic goals will solve one key part of the puzzle to help use drive ethical behaviours but what else can we do to drive an ethical, collaborative culture?

Ethics at the Forefront

If we fail to discuss or place a value on ethical behaviours, then we are less likely to see such ethical behaviours. That is, we must put ethics at the forefront of our ways of doing business. Simply relying on value statements, code of conducts, and the obligatory online, annual ethical training programs though is not enough.  Incentivising ethical behaviour is far more effective, as observed by Epley and Kumar:

“It is a boring truism that people do what they’re incentivized to do, meaning that aligning rewards with ethical outcomes is an obvious solution to many ethical problems.”[5]

The challenge of course, it to balance commercial incentives with ethical incentives. An organisation that is haemorrhaging money but is working at the pinnacle of ethical standards would not be a successful organisation. The converse is also true (for example; Enron, Volkswagon, and the News of the World to mention but a few), but we are not faced with a binary choice here. We can be both commercially successful and behave ethically. If we craft our commercial model right, drive the right culture, and ensure leadership is committed then all these elements will self- reinforce to drive us towards a high performing ethical team, delivering enterprise outcomes.

Language and Framing

The language we use and how we frame our agreements is also of paramount importance. If we focus people’s thinking towards enterprise outcomes and not just personal self-interest, then we are less likely to see unethical behaviours.  We therefore need to craft our approach to market, commercial agreements, and ways of doing business in terms of joint or collaborative approaches. Language such as “we will work together collaboratively”, or “the team will operate jointly to deliver the joint objectives” should be used. This is in stark contrast to traditional or adversarial contract language such as “the contractor shall…” or “the principal shall…”. Epley and Kumar illustrate the importance of language and framing in the following case study (emphasis added).

70% of participants playing an economic game with a partner cooperated for mutual gain when it was called the Community Game, but only 30% cooperated when it was called the Wall Street Game. This dramatic effect occurred even though the financial incentives were identical.[6]

Substance though is far more important than form, hence we must make sure that our actual commercial models and leadership approaches are aligned to our desired collaborative outcomes. This then leads us to a very important aspect of our blog, ‘leadership’. In our previous blog on leadership we observed that leaders set the tone at the top and are instrumental to reinforcing the organisations’ culture (good or bad).  No amount of goal alignment, balanced incentive structures, correctly framed collaborative relationships, and well crafted, equitable commercial models will drive ethical behaviours if our leaders are setting a bad example.

Conclusions

Collaboration can inherently reduce some of the risks associated with ethical lapses by incorporating joint decision making, transparency and a culture where everyone is incentivised to achieve mutual, enterprise goals.  Nonetheless, we need to be careful we do not set unrealistic targets. More importantly, we must ensure that individuals or teams never face catastrophic consequences where they fail to meet targets or goals. In such circumstances the temptation to cross ethical lines may be too great. Consistent with collaborative contract principles, we should always focus on ‘fixing the problem and not the blame’.


[1] https://www.thebluediamondgallery.com/wooden-tile/e/ethics.html

[2] Ron Carucci ‘Why Ethical People Make Unethical Choices’ Harvard Business Review (Dec 2016).

[3] ibid.

[4] Merete Wedell-Wedellsborg  ‘The Psychology Behind Unethical Behavior’ Harvard Business Review ( April 2019).

[5] Nicholas Epley and Amit Kumar ‘How to Design an Ethical Organization: A behavioral approach’  Harvard Business Review (May 2019).

[6] ibid.

Intra-Organisational Collaboration

ISO44001 – Collaborative Business Relationships Figure 1

Introduction

We have spent a lot of time in previous blogs discussing the value of collaboration between organisations to achieve superior outcomes, but we also need to recognise that intra-organisational collaboration can also deliver substantial benefits to organisations. ISO 44001 Collaborative Business Relationships illustrates this point noting that the standard exists to, “…improve business relationships in and between organizations of all sizes.”[1] More and more organisations are realising that stovepipe approaches to delivery erode value through unnecessary duplication, conflicting goals, and inefficient allocation of resources. By improving internal collaboration we are more likely to get; higher profitability, greater resilience to external shocks, and greater flexibility.[2] We are now seeing more organisations placing a greater focus on internal collaboration to reap organisational benefits.

A Duty to Collaborate and Cooperate?

In the contract law domain, we know that there is an implied duty to cooperate in commercial dealings[3], but what duties drive us to collaborate internally? Some public sector jurisdictions mandate collaboration and cooperation. For example:

  1. Under the United Kingdom Health Act, there is a duty to collaborate with other entities;[4]
  2. The United Kingdom police, fire and rescue and emergency ambulance services now have a duty to collaborate under the Policing and Crime Act;[5]  and
  3. In Australia, Commonwealth entities must encourage officials of the entity to cooperate with others to achieve common objectives, where practicable.[6]

Collaborative behaviours are also finding themselves being introduced into organisational values and behaviours. For example, the recently released Australian Defence Values emphasises the following behaviour:

Collaborate and be team-focused[7]

We also see this theme manifest itself in private sector ‘values’ that demand teamwork.[8] Coca cola, for example, specifically include collaboration as a core values as follows, “Collaboration: Leverage collective genius.”[9]

Putting collaboration at the forefront of an organisation’s mission, values, and behaviours will go a long way to help realise the full raft of collaborative benefits internally but this will only be successful if everyone in the organisation knows what collaboration means and what the common purpose is.

Turning Strategy into Tactics

Having Collaboration embedded in your mission and values will only go so far. Everyone in the organisation must understand what collaboration means to the way they work, think, and behave.  Word pictures such as the following will help embed a collaborative culture:

‘I will actively engage with others inside and outside Defence, and work to create a high- performing team environment that is always seeking to improve our enterprise.’[10]

‘To fully embrace collaboration, we must:

  1. embrace opinions and diversity of thought in order to avoid group-think or narrow perspectives
  2. proactively collaborate, and in a time-conscious manner, in order to ensure a meaningful result
  3. ensure that decisions or advice being progressed have been genuinely reviewed, and all comments have been captured and documented as appropriate to inform                          decision-makers, rather than as a ‘tick in the box’
  4. embed and embrace exemplary practices for communication, media management and advice to government at all times.’[11]

Collaborative principles may also be embedded in employee position descriptions such as the following which appear in the ‘work level standards’ for the Australian Public Service:

“Engage and collaborate with key stakeholders to identify opportunities, achieve outcomes and facilitate cooperation.”[12]

“Drive, manage and coordinate cross-agency collaboration initiatives, activities and relationships”[13]

Even with behavioural standards and values focussing on collaboration, an organisation must have a clear and unified strategy that is understood by everyone in the organisation.  Similarly, leaders must clearly demonstrate and reinforce collaborative behaviours.

Tips for Leaders

Gardner and Matviak offer the following tips to promote collaboration within an organisation:

Connect with the front lines. Make direct contact with people down the hierarchy so you have unfiltered information about people’s actions and states of mind.

Champion collaborative leaders. While recognizing individual effort, also acknowledge the team that helped make the person a hero by calling out the specific actions it took to provide support and the ways all of its members accomplished a goal together.

Reinforce the business’s purpose and goals frequently. A belief that their work fulfills a higher purpose motivates people to think and act in a more collective fashion.’[14]

In summary, leaders need to ‘sell the benefits’ of collaboration to achieve a common purpose and be seen as a role model in collaboration.

Conclusion

The benefits for collaboration are legion, not just between organisations but within organisations as well.  We are seeing more organisations recognise teamwork and collaboration as part of their values and behaviours.  As leaders, we need to ensure our ways of working, thinking, and leading are aligned to realise these collaborative values. 


[1] ISO 44001 p vii

[2] Heidi K. Gardner and Ivan Matviak “7 Strategies for Promoting Collaboration in a Crisis”, Harvard Business review July 2020.

[3] Mackay v Dick (1881) 6 App Cas 251, 263

[4] Health Act 1999 (UK) [26] [27].

[5] Policing and Crime Act 2017 (UK) [1]

[6] Public Governance Performance Act 2013 (Cth) [17].

[7] https://www1.defence.gov.au/about/values

[8] Rio Tinto values https://www.riotinto.com/en/sustainability/people#:~:text=Our%20five%20values%20%E2%80%93%20safety%2C%20teamwork,we%20work%20with%20our%20partners.

[9] Coca Cola values https://www.coca-cola.com.sg/our-company/mission-vision-values

[10] Defence Transformational Strategy (2020) p 29. https://www1.defence.gov.au/sites/default/files/2020-11/Defence-Transformation-Strategy.pdf

[11] ibid., p73.

[12] Work level standards for the Australian Public Service (March 2018) https://www.apsc.gov.au/work-level-standard-executive-level-1

[13] Work level standards for the Australian Public Service (March 2018) https://www.apsc.gov.au/work-level-standard-executive-level-2

[14] Gardner and Mitnik, opcit.

Collaboration – Measuring and Maintaining Success

Figure 1: ‘Staying Together’ ISO 44001 (2017) Collaborative Business Relationships

Introduction

In previous blogs, we explored the importance of selecting the right commercial models, selecting the right partners, jointly managing risks and opportunity, and other key features to reap the benefits of collaborative ventures.  Once the relationship is afoot though, we also need to ensure that collaboration remains at the heart of the relationship throughout the complete lifecycle. Once the euphoria of establishing a high performing, collaborating venture is over, there may be a temptation to revert to transactional management practices with a failure to maintain and sustain effective collaborative outcomes.  This blog explores strategies to measure the effectiveness of collaboration once a contract is afoot and identify opportunities to realign behaviours when required.

Best/Better Practice

ISO44001 Collaborative Business Relationships recognises ‘staying together’ as a critical part of the collaboration lifecycle.   Within this stage, there is a requirement to:

  1. Describe how relationship health will be monitored and reported,[1]
  2. Implementing processes to monitor behavioural and trust indicators, and[2]
  3. Review relationship metrics and take corrective actions where necessary.[3]

The key issue here is to ensure all relationship metrics are jointly managed and reviewed.  More specifically, relationship health needs to be considered in the context of delivering the joint objectives of the collaborative venture. 

Relationship Metrics

There are no hard and fast rules relating to what metrics should be used to measure relationship health.  There may be a mix of subjective and objective metrics, as well as lead and lag indicators. There is also opportunity to incorporate the relationship measurement framework with the broader commercial performance management framework. Generally, we would rarely align remuneration or payment to a relationship health metric rather, relationship health may be used as an ‘Enterprise Performance Measure’ or ‘System Health Indicator’ as described in Dr Andrew Jacopino’s excellent podcast on Third Generation Performance Based Contracts. As with all performance measurement metrics, there should not be too many, and those that are used must be relevant.

Some of the more common relationship metrics we can use include:

  1. Leadership participation. Are key leaders engaged and meeting regularly[4];
  2. Disputes and Issues. Are disputes and issues dealt with promptly and equitably;
  3. Transparency and No Surprises. Are there any communication failures, bottlenecks, or unnecessary incidences of surprises in the relationship;
  4. Collaborative Culture. Do buyers and suppliers work together collaboratively ensuring that all parties ‘fix the problem and not the blame’; and
  5. Continuous Improvement. Are the parties working toward a common goal to maximise value in a joint environment?

Some of the above metrics can overlap and some of the metrics may be sub divided into additional criteria. What is needed though is that there are agreed processes to measure relationship health so that corrective action can be taken and more importantly, positive behaviours are reinforced and acknowledged. 

Managing Relationship Challenges and Corrective Action

Relationship Management is a continuing activity that demands attention from all parties.  In long-term relationships we must anticipate the risks associated with complacency and challenges associated with key staff turnover.  Even the most diligent, high performing teams will encounter relationship ‘challenges.  Consistent with collaborative contracting principles, issues need to be dealt with considering the following principles:

  1. Deal with issues at the lowest level possible, quickly, and fairly;[5]
  2. Focus on fixing the problem, not the blame;
  3. Attempt to turn issues and challenges into opportunities (embrace continuous improvement opportunities)
  4. Do not be afraid to make big changes or change tack to better achieve joint objectives. 

The key objective in ‘staying together’ is focussing on delivering joint objectives. In some cases, uncertainty, risks, and environmental changes may mean that the joint objectives cannot be delivered, and the relationship may need to end.  Consistent with ISO 44001, an exit strategy should be pre-agreed to ensure future business opportunities are not jeopardised.[6]

Conclusions

Measuring and managing relationship health is of paramount importance in a collaborative venture.  This is of particular importance in long term relationships and where repeat business is expected.  Several metrics are available to assist in measuring relationship health though the real test of relationship health is reflected in how the joint team members interact, as observed in the Australian Government Guide to Alliance Contracting (emphasis added):

The desired culture should align to the behaviours required to enable the key alliancing features such as good faith and ‘no disputes’ to operate. Often the desired behaviours are described through establishing an Alliance Charter which documents the alliance values. However, the real culture of a team is demonstrated in how the team behaves and interacts.[7]


[1] ISO 44001 Collaborative Business Relationships [2.8].

[2] ibid [8.8.4].

[3] ibid [8.8.7].

[4] See e.g., Association of Strategic Alliance Partners ‘Alliance & Collaboration Assessment Tools’ at https://www.strategic-alliances.org/page/collaboration_tools

[5] ISO 44001 Collaborative Business Relationships [8.8.8].

[6] ibid [8.9.5].

[7] Australian Government – Department of Infrastructure and Transport, ‘National Alliance Contracting Guidelines – Guide to Alliance Contracting’ (2015), p 35 at https://www.infrastructure.gov.au/infrastructure/ngpd/files/National_Guide_to_Alliance_Contracting.pdf